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James M. Anderson

FDA Compliance

The Right Thing to Do

And a sound business model

Published: Tuesday, March 27, 2007 - 22:00

An ABC News/Washington Post survey in 2003 found that for the first time, 54 percent of Americans were dissatisfied with the overall quality of health care in the United States.

In 2006, the Commonwealth Fund released results of an international survey that measured 37 areas of quality. Despite spending 16 percent of its gross domestic product on health care, more than twice the average of other industrialized nations, the United States scored only 66 out of 100. Other studies have shown that life expectancy in the United States lags behind that of Japan, Italy, France, Canada, Germany and the United Kingdom. Thousands of Americans die every year from errors in hospitals. Millions are uninsured or underinsured.

Hand-in-hand with accepting the challenge of improving the health-care delivery system and the outcomes it produces, hospitals and health care providers also must be convinced of the business justification for investing in quality. Cynicism about the business case for quality improvement is an anomaly unique to the health care industry. It is born of a third-party payer system, the lack of a commonly accepted definition of health care quality and how to measure it, and questions about how investments in quality will be rewarded.

We all want the best possible medical and quality of life outcomes for ourselves and our families, our children and our elderly parents. Improving care clearly is a moral imperative, but is it also a business imperative? Can hospitals improve safety and quality—and at the same time contain costs and enhance their position in the marketplace? Is there a business case for quality?

Competing on quality
At Cincinnati Children’s Hospital Medical Center, we have embedded that belief at the core of our mission statement, our strategic plan and our business strategy. Our mission commits us to achieving the best medical and quality of life outcomes, patient and family experience and value. The business model underlying this strategy is simple: We expect to enhance our reputation and differentiate ourselves in the marketplace based on quality. We believe that when we can demonstrate that we deliver measurably better outcomes, better family experiences and better values, we will attract patients and referring physicians to Cincinnati Children’s.

A novel approach to quality improvement
Traditionally, hospitals have addressed quality by recruiting talented physicians, building new facilities, and investing in state-of-the-art equipment and technology. They haven’t, however, invested enough in improving the processes and infrastructure that support the delivery of care.

They have tended not to look at quality and value at the level of outcomes and experiences for individual patients with specific conditions. The third-party payment system contributes to this by separating transactions that occur between the patient and the provider. Payers typically have focused on reducing costs by negotiating discounts for large networks, restricting patient and physician choices and capping reimbursement, rather than focusing on improving outcomes for individual patients.

In the current climate, the focus may be changing. Increasingly, accrediting organizations, third-party payers and consumers are demanding improvements in the safety, quality and affordability of care. The Centers for Medicare and Medicaid Services (CMS) recently announced that it wants to eliminate payments for “never events,” which occur when a patient experiences a negative consequence of care that results in unintended injury, illness or death. The Leapfrog Group, a coalition of large private and public health care purchasers, is encouraging public reporting of quality and outcomes and is collecting data on hospital progress toward implementing safe practices. We believe that the ability of providers to deliver better value—demonstrable improvements in outcomes and experience per dollar spent—will drive the industry’s future.

While Cincinnati Children’s has invested in people, buildings and technology, we also have systematically focused on improving processes, measuring outcomes and spreading best practices within our organization. We have built an infrastructure to support this work, including adding staff with expertise in process improvement and data management. We certainly have invested substantially in new information technology, such as computerized physician order entry, and at the same time we have analyzed and redesigned care delivery systems so that computerization doesn’t simply automate inefficient, error-prone processes. We also have sought to learn from other industries,such as the automobile and nuclear industries, that have proven success by applying reliability and improvement science to create safer, more efficient and effective systems for producing complex products.

It must be acknowledged that quality and process improvement work requires long-term investment of time and resources. Are there financial incentives for making this investment? Does it make business sense?

We believe there are substantial financial benefits to be gained, such as the following:

  • Reduction in overutilization of inpatient space and supplies
  • Decreased workload caused by eliminating preventable errors
  • Improved ability to schedule staff time effectively; less overtime
  • Improved flow to meet growing demand with existing resources
  • Ability to redeploy existing resources toward new patient populations, particularly in tertiary inpatient and surgical services which offer higher revenue or margins

Financial result of quality initiatives
We have begun to analyze and quantify the financial effect of our strategic improvement projects, starting with our initiative to reduce surgical site infections (SSI). It must be emphasized that, above all, eliminating preventable infections is simply the right thing to do. It spares the patient and family needless pain and suffering. Our quality improvement work to eliminate preventable infections goes to the core of our mission to provide the best outcomes for our patients.

At the same time, from a marketing perspective, lower SSI rates help us differentiate our services based on quality. From a financial perspective, preventing SSIs significantly reduces health care costs.

A painstaking review of charts for Cincinnati Children’s patients who matched certain criteria determined that, on average, each surgical site infection adds 10.6 days to the patient’s hospital stay and $27,300 to the bill. By implementing a combination of improved patient preparation practices, environmental changes and process changes, we succeeded in reducing the rate of SSIs from 1.1 infections per 100 procedure days to 0.5. This means 33 fewer infections in one year and a savings of over $900,000 in costs.

We have recently begun a similar detailed analysis of the cost savings resulting from our highly successful improvement project to reduce ventilator-associated pneumonia (VAP). In that project, staff in our pediatric, cardiac and newborn intensive care units worked together for the first time to produce systemwide changes and improvements. Physicians, nurses, technicians and respiratory therapists worked as a multidisciplinary team. The team developed a pediatric bundle of care protocols following literature and chart reviews, as well as examination of best practices in our own intensive care units. They identified and purchased equipment that reduced condensation in the ventilator, worked with our vendor to produce a mouth care kit, redesigned the workspace around the bedside, created a care checklist and implemented strategies to achieve near-perfect adherence to process changes. The result was a drop in the VAP infection rate from 6.5 to 1.2 per 1,000 ventilator days, resulting in 60 fewer VAPs in fiscal year 2006 than in the previous year. Although the results of our financial analysis of this project aren’t complete, we expect a significant reduction in the use of hospital resources and associated costs.

While we experience a loss of revenue from some charge-based payers, we also reduce the strain on inpatient bed space, allowing us to reallocate space and redeploy staff to meet growing demands in other areas.

Improving quality and safety also offers the health care system the opportunity to reduce escalating legal and medical malpractice costs. A recent study by the consultancy Aon found that the average jury award for malpractice increased from nearly $2 million to $5 million from 1993 to 1997. Since 2000, at least six states have seen jury awards for medical malpractice that were in excess of $50 million for a single claim. Three states saw individual claim awards in excess of $90 million. In some areas, physicians are leaving medical practice because of the cost of malpractice insurance, reducing the availability of services to patients. At Cincinnati Children’s, we believe our quality improvement work was an important factor in our ability to negotiate substantially lower medical malpractice insurance rates for the coming year.

These successes demonstrate that investing in improvement offers significant opportunities for both improved quality and reduced costs—addressing both the moral and business imperatives of health care delivery.

As the U.S. health care system continues to evolve in the age of consumerism, health care providers must become more innovative and flexible to provide the best value for customers. Now is the time for providers to embrace quality improvement in their organizations. Doing so will improve outcomes, advance learning to spread and sustain those improvements, contribute to the competitive strength of their organizations and over time build financial strength—each an essential ingredient to improving health status in this country.


About The Author

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James M. Anderson

James M. Anderson is president and chief executive officer of Cincinnati Children’s Hospital Medical Center. In 2006, Cincinnati Children’s received the American Hospital Association-McKesson Quest for Quality prize and was named best place to work in the grand category (500 and more employees) in a survey conducted by the Cincinnati Business Courier.